Bob Jones University v. Connally

Decision Date19 January 1973
Docket NumberNo. 72-1075.,72-1075.
Citation472 F.2d 903
PartiesBOB JONES UNIVERSITY, Appellee. v. John B. CONNALLY, Secretary of the Treasury of the United States and Johnnie M. Walters, Commissioner of Internal Revenue, Appellants.
CourtU.S. Court of Appeals — Fourth Circuit

Leonard J. Henzke, Jr., Atty., Dept. of Justice (John K. Grisso, U. S. Atty., Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Grant W. Wiprud, Attys., Dept. of Justice, Tax Div., on brief), for appellants.

J. D. Todd, Jr., Greenville, S. C. (Wesley M. Walker, James H. Watson, O. Jack Taylor, Jr., and Leatherwood, Walker, Todd & Mann, Greenville, S. C., on brief) for appellee.

Before BOREMAN, WINTER and BUTZNER, Circuit Judges.

WINTER, Circuit Judge:

Bob Jones University (Jones University), a non-profit educational institution which concededly practices racial discrimination in the admission of students, sought a preliminary and permanent injunction to prevent Treasury officials from terminating its tax-exempt status. Treasury officials had begun administrative proceedings to that end in accordance with an announced policy of withdrawing tax-exemption and deductibility-assurance rulings of schools having racially discriminatory policies, when suit was filed. The district court, 341 F.Supp. 277, denied the Treasury officials' motion to dismiss for lack of jurisdiction and granted an injunction pendente lite. Because we conclude that the district court lacked jurisdiction under § 7421 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 7421 to grant the requested relief, we reverse and remand the case for dismissal of the complaint.


Jones University is a fundamentalist religious organization which subscribes to the belief that God intended the various races of men to live separate and apart, and that intermarriage of different races is contrary to God's will and the teaching of the Scriptures. In furtherance of these beliefs, Jones University prohibits the admission of black students, it prohibits students it does admit from dating or marrying members of another race, whether students or not, and it accepts some Oriental students but only on condition that they will not date outside of their own race. Jones University has enjoyed tax-exempt status since at least April 30, 1942, under § 501(c)(3) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 501(c) (3) and the predecessor code.

On July 10 and July 19, 1970, the Internal Revenue Service (IRS) announced publicly that it could no longer legally justify allowing tax-exempt status to private schools which have racially discriminatory admission policies, nor could it treat gifts to such schools as tax-deductible charitable contributions. It also stated that, although the non-discrimination requirement would not affect a school's ordinary admissions policies which had no relation to race, the requirement would prohibit allowance of the tax benefits to church-related schools which discriminated on the basis of race. On November 30, 1970, IRS wrote a letter of inquiry to each school in the United States, including Jones University, announcing its new policy and requesting each school to furnish specific information regarding its admissions policy within thirty days. Jones University responded that it did not admit blacks.

There followed various communications and meetings between IRS and representatives of Jones University, each refusing to deviate from its original position. The suit was filed on September 9, 1971, and no further administrative steps were taken. Had suit not been filed there would have been further conferences at the level of the District Director and the National Office in Washington. Only if Jones University declined to abandon its racially discriminatory policies and IRS declined to alter its announced policy would Jones University's tax-exempt status be revoked, its records audited and a notice of proposed tax deficiencies issued. Even then, Jones University would have additional opportunities to seek administrative relief. See 9 Mertens Law of Federal Income Taxation (Rev.), §§ 49.110, 49.112, 49.114, 49.115, 49.118-49.124. If administrative relief was not forthcoming, IRS would issue a notice of deficiency, the legality and correctness of which could be litigated in the Tax Court, 26 U.S.C.A. § 6213, or, alternatively, Jones University could pay the tax and sue for a refund on the ground of illegality, 28 U.S.C.A. § 1346; 26 U. S.C.A. § 7422.


The controlling statute reads:

§ 7421. Prohibition of suits to restrain assessment or collection
(a) Tax. — Except as provided in sections 6212(a) and (c), 6213(a), and 7426(a) and (b)(1), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.

The exceptions in the statute are inapplicable: §§ 6212(a) and (c) and 6213(a) permit suits in the Tax Court to litigate the legality and correctness of deficiency assessments and § 7426(a) and (b)(1) relates to foreclosure proceedings and judicial sales with regard to property on which the United States has a tax lien and permits the United States to be joined and participate in cases of this nature.

Jones University contends, and the district court concluded, that the statute is inapplicable because no formal assessment of deficiencies had been made and thus the suit did not seek to enjoin an "assessment or collection" of any tax. We disagree. First, the administrative proceedings which had as their object the withdrawal of tax-exemption and deductibility-assurance rulings are directly involved with the assessment and collection of taxes from Jones University and those making contributions thereto. If those rulings are withdrawn, Jones University will be liable for taxes on any net income which it realizes and contributors to Jones University may not deduct from their gross income the amounts of their contributions. Either event would result in an increase in taxes.

A number of cases hold, or make clear, that a suit to enjoin the withdrawal of tax-exemption rulings, the withdrawal of which would ultimately result in potentially greater tax revenues, constitutes a suit to enjoin the "assessment" of a tax within the meaning of § 7421, and we are persuaded to follow them. J. C. Penney Co. v. United States Treasury Dept., 439 F.2d 63 (1971), aff'g 319 F.Supp. 1023 (S.D.N.Y.1970), cert. den. 404 U.S. 869, 92 S.Ct. 60, 30 L.Ed.2d 113 (1971); Koin v. Coyle, 402 F.2d 468 (7 Cir. 1968); Kennedy v. Coyle, 352 F.2d 867 (7 Cir. 1965); Zamaroni v. Philpott, 346 F.2d 365 (7 Cir. 1965); Crenshaw County Private School Foundation v. Connally, 343 F.Supp. 495 (M.D.Ala.1972) (on motion to dismiss); Horton v. Humphrey, 146 F.Supp. 819, 821 (D.D.C.), aff'd 352 U.S. 921, 77 S. Ct. 224, 1 L.Ed.2d 157 (1956) (per curiam). The common sense of the matter is that where, as we have shown, the necessary result of granting the relief prayed would be to prevent the assessment of any tax, § 7421 is applicable.

The circumstances under which § 7421 is not to be applied, when it would otherwise appear to be applicable, are spelled out in Enochs v. Williams Packing Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). The test to permit a taxpayer successfully to enjoin the assessment or collection of a tax is twofold: first, he must show irreparable injury to himself if collection were effected, and second, he must show that "under no circumstances could the Government ultimately prevail" in its assertion of tax liability. 370 U.S. at 7, 82 S.Ct. at 1129. Otherwise, his remedy is to litigate the validity or amount of the tax by the statutory routes, i. e., appeal of assessment, or payment of the tax and suit for refund.

We have no doubt that Jones University will suffer irreparable injury if withdrawal of its tax-exempt status is effected even if it should ultimately prevail in its argument that its tax-exempt status may not legally be disturbed. Of course, the tax on any net income which may be imposed would be recoverable, but we would be naive indeed not to recognize the substantial portion that contributions play in the gross income of any institution of higher learning and the adverse effect on those contributions if their deductibility for income and estate tax purposes of the donors is disallowed. If Jones University is required to litigate its tax-exempt status after that status has been withdrawn, we can predict with confidence that during the period of litigation it will lose gifts and contributions which will never be recoverable even if it is successful in having its tax-exempt status restored. Thus, the first test of Williams Packing, irreparable injury, is met, and we consider the second.

We cannot conclude that "under no circumstances" could IRS be successful in withdrawing Jones University's favorable tax rulings. Although we decline the invitation of counsel for Jones University, extended in oral argument, to decide this case finally on the question of whether Jones University is entitled to tax-exempt status, and consequently we are not to be understood as expressing any view on the ultimate merits of the dispute between IRS and the taxpayer, the recent decision in Green v. Connally, 330 F.Supp. 1150 (D. D.C.1971), aff'd per curiam sub nom. Coit v. Green, 404 U.S. 997, 92 S.Ct. 564, 30 L.Ed.2d 550 (1971) makes apparent our conclusion. Green was a class action by Negro parents of school children attending public schools in Mississippi to enjoin U. S. Treasury officials from according tax-exempt status and deductibility of contributions to private schools in that state which discriminated against Negro students. The relief prayed was granted and on appeal the Supreme Court affirmed per curiam.

The essence of the decision of the D. C. district court may be distilled as...

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